Pennsylvania’s “Big-Brother” Amnesty Scares Up $35 Million in Overdue Taxes

Although there have been complaints about the “big-brotherish” TV ads being used to publicize the state’s current tax-amnesty program, the back-tax collection effort, now three weeks old, seems to be having an effect.

The state Revenue Department reported Monday that more than $35 million in overdue taxes has either been collected or is in the process of being sent in. The largest single payment has been $548,000 in overdue corporate taxes.

The state hopes to collect at least $190 million by June 18, to help balance the $27.8 billion state budget for fiscal 2009-10, which ends June 30.

So scaring the daylights out of Pennsylvania’s noncompliant taxpayers has resulted in some past due taxes being paid. (They still have a long way to go to get to $190 million) That shouldn’t be too surprising as we would assume that bold threats from an authority, such as a government department, would result in some form of response.

Tax amnesties are a popular method used to pick up extra revenue during bad economic times, such as what Pennsylvania is going through now. However, amnesties seemingly condone delinquency; voiding any incentives to pay taxes on time by eliminating or significantly reducing late tax penalties. The notion that there will be future tax amnesties offered by a state only further exacerbates this issue. In Pennsylvania’s case, the state outlined that people participating in this amnesty will not be able to participate in future amnesties. Knowing that this isn’t Pennsylvania’s first amnesty, I’m not sure how much weight can be put into that threat.

Another issue to highlight is that compliance in this case has been brought about by increased enforcement and publicity, not through the amnesty itself. Enforcement/publicity costs and revenue in this situation have some trade-offs that should be considered.

Above all, if a state’s tax system is so complex that tax evasion is in fact a glaring issue, then it might be time to consider reforming the tax system rather than relying on amnesties—especially ones relying on Orwellian threats.

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